Recent changes and developments, both legislatively and with respect to New York City policy, could substantially impact certain commercial real estate tax incentive programs. These developments will make obtaining and retaining these tax incentives more difficult for taxpayers and will serve to increase city revenues at commercial taxpayers’ expense.
New York State’s Industrial Commercial Abatement Program (ICAP) and its predecessor, the Industrial Commercial Incentive Program (ICIP) provide reductions of a portion of real estate taxes for up to 25 years for qualifying commercial properties. To qualify, industrial or commercial properties must be physically altered, expanded or improved. In some cases, newly constructed properties qualify as well. Qualifying properties can potentially enjoy substantial tax savings.
The current administration has frequently called for reforming ICAP to make the benefits less generous in the hopes of providing the city with additional tax revenue. The program was set to expire in 2022, and while the state’s recently enacted budget extended it through 2025, some changes made to the program may increase city tax revenues.
Specifically, the new program makes previously eligible self-storage facilities ineligible for ICAP benefits. Any self-storage facilities that qualified for ICAP by July 1 would be grandfathered into the program; however, going forward, self-storage would no longer be considered industrial or commercial for ICAP purposes. Eliminating these benefits may result in fewer such facilities being developed, potentially creating a long-term loss of revenue. Fewer transactions of land for development may cost the city and state other forms of revenue (i.e. transfer tax, income tax, etc.). One self-storage developer has already sued the city, stating that five planned projects could not meet the July 1 deadline and are no longer viable without ICAP benefits.
The city has also started enforcing long-ignored statutes to rescind benefits that properties receive under ICIP. At the end of 2019, the city Department of Finance (DOF) began sending notices to owners receiving ICIP benefits stating that if they did not cure all violations on their property by April 15, their ICIP benefits would be suspended, beginning with the July 1 tax bill. The notices stated that for a property to continue receiving ICIP benefits the property must be free of violations enumerated in section 11-266 of the New York City Administrative Code. Those include provisions of the building, fire and air pollution control codes. An owner has 180 days from receipt of the notice to cure the violations.
While incentivizing owners to cure building violations is admirable, the city’s enforcement has created potential problems. The code contemplates removal of benefits only given specific violations. However, notices of revocation have been sent to owners of buildings with any violations on them, not just those specifically enumerated. Notices were also not limited to owners whose violations had been adjudicated by a court or the Environmental Control Board, as required by Section 11-266. Furthermore, notices have gone to owners who have no ability or even right to cure violations. For example, some commercial condominium units receiving ICIP benefits received these revocation notices, even though the violations existing at the building relate to residential units or other units not controlled by the owner receiving the tax breaks. It remains to be seen how the city intends to deal with these nuances.
For now, beneficiaries have received a temporary reprieve from enforcement. Given the recent halt to construction projects in the city due to COVID-19, as well as the limitations on the DOB to inspect properties to make sure violations have been cured, the city recently agreed to delay its enforcement policy until December. However, the eventual planned enforcement remains in place, and owners should review and plan to cure existing violations in order to continue receiving ICIP tax benefits.
Commercial real estate tax incentive programs have been under increased scrutiny. Owners can expect further scrutiny and policy changes like those highlighted above.
Steven Tischo, Esq.
Greg Papeika, Esq.
Ditchik & Ditchik PLLC
370 Lexington Avenue, Suite 1611
New York, NY 10017
steve@ditchik.com
greg@ditchik.com
212-661-6400
